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Wednesday, April 13, 2011

Why is Facebook Worth $75 billion?

Last month a story stated that Facebook was valued at $75 billion on the so-called “second market.” This figure was repeated in a Slate post today. Even if Facebook’s true value is one tenth of that, it’s a lot of money.

Will someone please explain to me why it is worth so much? OK, I understand that Facebook has over 500 million active users who spend over 700 billion (yes, billion) minutes per month on the site. That is certainly a huge number of potential advertising targets.

But do you know anyone, anyone at all, who has ever clicked on Facebook ad on purpose? I don’t, nor do any of my Facebook friends. The ads are mostly quite cheesy. See screen capture below.

[Slightly off point but I can’t think of even one thing to do in Westchester County or North Jersey combined.]

I realize I am but a mere doctor and doctors are notoriously bad businessmen and investors. It’s likely I just don’t get it. But, in fact, I just don’t get it.

3 comments:

Anonymous
said...

TV ads certainly haven't made me think "I want to know more" but still they appear to have an effect. Same applies to internet ads, even though I don't click on them they have some effect. Also, we're talking such a huge amount of minutes spent on facebook, even though only one in a thousand pays attention to the ads that's still 500.000 paying attention to your ad.

I am a little nerdy on advertisements in general, even to the point of collecting several types of print advertisements in a categorized swath of styles for my own personal reflection.. but anyway!

I interact with Facebook ads a lot. The reason I think Facebook is worth so much in such estimates is that Facebook has a near-unprecedented level of specificity that advertisers are absolutely crazy about. The more specific you can target an ad to someone, exceedingly higher likelihood exists that the person to whom it is accurately targeted will click on it and perhaps then make a purchase.

Viewers of the ad either won't make a purchase or the purchase made can't be tracked as a direct result of the ads' influence without the user making a clickthru -- so having the statistical knowledge that one ad influenced purchases better than another is a level of detail leaps-and-bounds better than a billboard.

I heavily rate ads I get on Facebook (which can be done by clicking the [x] as if to close it out, within the tiny space the ad rests), and have seen great ones and terrible ones. I have made several purchases as a result of Facebook ads, and have signed up to even more email lists that I never knew about that I do enjoy.

If you, as a prospective advertiser, can target your ad to such a narrow, specific niche, you have an extraordinary level of confidence that the person will notice it, firstly, and then have a reasonable suspicion they'll click on it just to learn more. If you're selling, say, entry vouchers to a local Magic: The Gathering tournament, you'd naturally much rather target ads (which are fairly and appropriately inexpensive) to a certain shade of character, rather than en masse to the general public -- in the same way that a retail endcap loaded with limited edition Pokemon card booster packs will catch the eye of an avid player more fervently than it would to say, a pensioner whose interests revolve around lawn care.

Combined with the absurd number of users, the ability to ultra-narrowly target ads to these users is a truly extraordinary income-generating opportunity.